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ACCT346 Week 2 Homework Assignment

Question
1. The Johnson Company applies a predetermined
manufacturing overhead rate based on direct
labor hours to allocate (or charge) manufacturing overhead costs to the many
different production jobs it performs. For the most recent fiscal year, the
company originally estimated that it
would incur $750,000 in total manufacturing overhead during the year and that a
total of 250,000 direct labor hours would be worked. After the year was over,
the company subsequently determined it had actually
incurred manufacturing overhead costs of $800,000 and 200,000 direct labor
hours had been worked during the year.
Part A. What was the predetermined
manufacturing overhead rate that the company originally calculated and applied
to each individual production job throughout the year? Remember that the
company implements this rate based upon direct
labor hours, so your answer will be expressed in dollars per direct labor
hour. Please show your calculation.

Part B. What was the total amount of
manufacturing overhead that was applied (allocated) to all of the production
jobs that were worked throughout the year? Hint: you’ll need to use the answer
from Part A above along with some of the other given data to help you calculate
this.

Part C. At the end of the year, the
company was able to calculate, after the fact, how much it had either
under-allocated (under-applied) or over-allocated (over-applied) for its
manufacturing overhead for the year. How much was this amount? Also, be sure to
additionally specify whether this dollar amount was under-allocated or over-allocated.
Hint: you’ll need to use the answer from Part B along with some of the other
given data to help you calculate this.

Question
2. The following account balances and amounts
for the month of January were obtained from the general ledger of the Smith
Company.
Beginning Work-in-Process (WIP) Inventory Balance $ 0
Ending WIP Inventory Balance 50,000
Total Direct Material Costs Used in January
Production 150,000
Total Direct Labor Costs for January
Production 70,000

Also note that the Smith Company applies a
predetermined manufacturing overhead rate based on direct labor costs (dollars) to allocate (or charge) manufacturing
overhead costs to the many different production jobs it performs. At the
beginning of the year, the company originally budgeted $450,000 of manufacturing overhead for the year and estimated
$150,000 of direct labor costs for the year.
Part A. What was the predetermined
manufacturing overhead rate that the company originally calculated and applied
to each individual production job throughout the year? Remember that the
company implements this rate based upon direct
labor costs (dollars), so this rate will be expressed as either a
percentage or a multiplier (e.g., 150% or a 1.5 times multiplier). Please show
your calculation.

Part B. What was the total amount of
manufacturing overhead that was applied (allocated) to all of the production
jobs worked for January? Hint: you can calculate this amount using the result
from Part A above along with the direct labor cost for January.

Part C. Calculate the total manufacturing costs for
the month of January. Hint: you’ll need to use the answer from Part B plus some
other data provided above.

Part D. Calculate the Cost of Goods
Manufactured (COGM) for the month of January. Hint: you’ll need to use the
answer from Part C plus some other data provided above.

Question
3. The Jones Company manufactures two separate
product lines: Segways and Hoverboards. The annual production and sales of
Segways is 800 units, while 2,400 Hoverboards are produced and sold each year. The
company has been using a traditional, fairly simplistic way of allocating (applying)
its total manufacturing overhead costs between the Segway and Hoverboard
product lines by simply apportioning its total overhead expenses based upon the
number of direct labor hours worked in the factory for each of the two separate
products.
However, Jones’ management is now looking
at the possibility of instead changing to an activity-based costing (ABC)
approach for its products. To implement activity-based costing, the company has
identified three major cost pools comprising its manufacturing overhead: production
line set-up costs, clean-up costs, and tear-down costs. The following data
table was compiled for these cost pools to summarize the estimated activity and
associated expense amounts for the total annual overhead:

Expected Activity

Activity Cost Pool

Total Overhead Cost

Segways
(# of “events”)

Hoverboards
(# of “events”)

Total
(# of “events”)

Production line set-up
costs

$52,000

600

2,000

2,600

Production line clean-up
costs

$19,500

150

500

650

Production line tear-down
costs

$6,500

600

2,000

2,600

Note
that there are three parts to this question and it extends onto the next page.
Part
A. Using the table of estimates provided above
for the anticipated activities related to overhead, calculate the activity rate for each of the three cost
pools. In other words, you will calculate three different answers: the average
cost (dollars) for each “set-up event,” cost for each “clean-up event,” and
cost for each “tear-down event.”

Part B. Specifically for the Hoverboards, what is the total
activity-based cost for each of the three individual activity cost pools: the
set-ups, clean-ups, and tear-downs? Show the calculation for each of these
three activity totals. Hint: you’ll need to use results from Part A plus other
data from the table.

Part C. Specifically for the Hoverboards, what are the annual total
overhead costs based upon the activity-based costing analysis? Also, what
is the overhead cost per unit (for Hoverboards)? Hint: you’ll need to
use the results from Part B along with some other given data, and simply assume
that the total overhead costs are comprised of the total set-up costs, clean-up
costs, and tear-down costs.